Stock market investors want the markets to make sense.
I love that they (the markets) don’t. If they made sense, you could tame them, like your nerves.
There are times of course when the markets seem to be making sense. They are the most dangerous because you need to zig when almost everyone is zagging.
In the summer of 2012, Italy, Spain and Greece were headed to zero. In May of 2012, I predicted the Pavarotti, Tapas and Gyro (not Euro) Crash. Over the next two months, the markets sung to my tune, with each country falling 15-30 percent in a very fast decline.
Flash forward to today and all the country ETF’s are 50-100 percent higher. Italy is lagging despite having the fastest cars. Go figure.
I have my own thesis about stocks markets and that is that ‘Mood trumps Math‘.
The law of large numbers is only distorting this phenomenon further. The law of large numbers is affecting both sides of the markets. The stock buyers have become these gynormous allocators of capital that are finding it harder and harder to hide their footsteps and on the company side, the global markets, tax and accounting rules have made the balance sheets and income statements a hairy mess.
On the other end of the investing spectrum is the booming ‘angel’ sector. I believe to invest successfully over time, your investments have to make complete sense. They are illiquid and you are locked in.
This old post from Fred Wilson is still a great primer for early stage investing – finding the magic. The right team, product, idea and market at the right time. Price is the least important.